Innostructure, Part III: Funding

Putting the fun in funding

Sorry, I couldn’t resist.

Funding is always such a serious topic, well, because it involves money.

And money is a universal form of commitment that most people accept.

Few entrepreneurs are interested in promises, although many will accept ‘sweat equity’. This is a free form of personal commitment (usually in the form of time), but when the dust settles, the odds are pretty good that ‘free’ is a four-letter word that doesn’t get a venture very far.

Funding: A Look at Canada’s 2017 ‘Innovation’ Budget

Last week, Bill Morneau delivered a new budget that was loaded, quite literally, with innovation. I heard someone mention that ‘innovation’ was the most frequently used word in the budget, with more than 200 instances.

As someone who’s repeatedly spoken of innovation (in my own way, as ‘innostructure’), I’m pleased by this effort to acknowledge the transition of our economy from capital-driven (infrastructure) to conceptual-driven (innovation and/or innostructure).

Unfortunately, we’re still spending more money than we earn, which is not a very good message to Canadian households.

This must mean they’re finally serious about leaving startup companies to entrepreneurs.

Oops. We all know that won’t happen.

I won’t spend much effort on picking apart the budget. Smarter people than me have already done this with many suggestions about other ways governments can fuel innovation:

As far as I’m concerned, the first person that should be investing in a business is the owner.

I’m happy to see governments take a tangential, grant-driven approach to helping out entrepreneurs, especially when it comes to helping lay out the framework of a new entity. However, until the owners of the businesses put real skin in the game, I doubt that that these programs will deliver what self-funded businesses could.

Also, while I think we have a healthy venture market in Canada, I only want to involve or turn to venture markets once I feel my business is ‘stable’. This means I’ve put the structure in place (ie. legal and corporate structure), I’ve organized my partners, I’ve protected my intellectual property and I might even be generating a little bit of cash.

The result? Canadian entrepreneurs will stop selling themselves short just when they’re getting off the ground.

For me, this is the fundamental reason why we are a branch-plant economy and why so few medium and large companies stay in the hands of Canadian owners. There are exceptions, of course, but I hope you catch my drift.

The Point: Funding Our Own Businesses with Our RRSPs

As I said, incentives and support need to start at home.

Entrepreneurs should be able to tap their RRSPs similar to how people can borrow against them with the Homeowner’s Plan. The entrepreneur repays the RRSP as they make money.

We fuel sprawl with our RRSPs so why not fuel business development, an entrepreneurial class and innovation as a result?

The structure would be pretty much identical to the Homebuyer’s Program: you withdraw a certain amount (eg. $25,000) and commit to repay the balance over a set number of years (eg. 10 years) after a brief holiday (eg. 3 years) without penalty.

Right now, entrepreneurs who start businesses that eventually employ people that buy houses using the Homebuyer’s Program are penalized when they withdraw from their RRSPs.

This is hardly fair.

Spouses, family members and even friends should be able to do the same thing in exchange for a share of the company.

I believe that this would would be a great big step towards putting new ventures completely in control of the people that start them or that will help bring them to the light of day. It will also reduce our sense of desperation when it comes to funding options.

The biggest snag is defining a ‘qualifying entity’. It could be a corporation, co-op, partnership, non-profit or even charity, but this is certainly where our governments could help oversee this potentially massive private funding market. A national database of RRSP-eligible companies could be created, resulting in a massive and unique private funding network that simply didn’t exist before I presented this concept.

What are your thoughts on this? Are you ready to invest your savings in your own business?